Asset management is grappling with several “existential challenges” including mega indexers capturing inflows, fees being squeezed, more regulatory oversight and more demanding investors.
These were the findings of a new report entitled Rebooting the Global Asset Management Industry, published by Citi and CREATE-Research.
The research surveyed 269 asset managers in public and private markets from 26 countries, accounting for $37.7trn of AUM. It also conducted more in-depth interviews with 30 senior executives from asset management businesses.
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It found that, across the industry, profit dynamics have deteriorated, sparking a makeover of existing business models. Firms have found it harder to generate alpha, and top-line growth is coming from market rather than organic growth.
But the research highlighted three growth drivers for asset managers: the first is the emergence of a new class of digitally savvy investors benefiting from the biggest wealth transfer in history as Baby Boomers pass down their assets. The second driver is the democratisation of private markets via tokenisation.
By enabling fractional ownership, this will make private markets more accessible to mass market retail investors. And, finally, the rise of AI and GenAI (generative AI, which can create new content based on user prompts) will disrupt the whole value chain.
Respondents said they are seeing technology as a new source of value creation. Around 41% said they are in the implementation phase of AI, and most said they expect its largest impact will be on the investment process. “Without mindset shifts, GenAI is just another tool. It requires seeing clients through new lenses. This is a leadership challenges,” said one senior executive.
Outsourcing remains a key trend, with 72% of firms outsourcing custody and settlement in the back office, 35% outsourcing IT infrastructure in the middle office, and 20% outsourcing trading in the front office. Cost reduction was the main benefit to doing this, respondents said.
Asked what asset managers will need to have a winning business model that can thrive in a changing world, respondents highlighted democratised access to private markets, performance-based fees, outcome-based investments and technology-assisted personalised portfolios.
“Before long, the new growth drivers could potentially transform the asset industry as we know it,” one respondent predicted.
Read the full report here.
